PDF Solutions(US:PDFS)2025-02-27 21:14PART I Item 1. Business PDF Solutions provides data solutions to the semiconductor industry, generating revenue from Analytics and Integrated Yield Ramp services - The company derives revenues from two sources: Analytics (contract fees for on-premise software, hardware systems, SaaS, and professional services) and Integrated Yield Ramp (contract fees and value-based royalties called Gainshare)28 - As of December 31, 2024, the company held 128 U.S. patents with expiration dates ranging from 2025 through 2044, protecting technologies such as its CV and DFI systems and AI/ML inventions3637 Customer Revenue Concentration | Year | Customer Concentration | Percentage of Revenue | | :--- | :--- | :--- | | 2024 | Two Customers | 31% | | 2023 | One Customer | 35% | | 2022 | Two Customers | 41% | Employee Distribution as of December 31, 2024 | Department | Number of Employees | | :--- | :--- | | Field Application Engineers | 174 | | Research and Development | 189 | | Sales and Marketing | 113 | | General and Administrative | 63 | | Total | 539 | | Region | Number of Employees | | :--- | :--- | | United States | 321 | | Asia | 180 | | Europe | 38 | Item 1A. Risk Factors The company faces significant risks including R&D challenges, sole-source provider reliance, customer concentration, and evolving export controls - The company relies on sole-source providers for specialized parts for its eProbe hardware and for some enabling software102 - A significant portion of revenue comes from a limited number of customers, with two customers accounting for 31% of total revenues in 2024112 - The company is subject to complex and changing U.S. export regulations (EAR) and economic sanctions (OFAC), which have restricted business with certain customers and in certain countries115118 - The company and its third-party service providers face evolving cybersecurity risks, including hacking, ransomware, and phishing129130133 - The planned acquisition of SecureWise LLC, announced in February 2025, and other potential acquisitions carry risks related to integration, unanticipated costs, and diversion of management's attention160 Item 1B. Unresolved Staff Comments The company has no unresolved staff comments from the SEC - None168 Item 1C. Cybersecurity The company manages cybersecurity risks through a NIST-guided framework, with Board oversight and no material incidents in over five years - The company's cybersecurity risk management process is guided by The National Institute of Standards and Technology (NIST Cybersecurity Framework)171 - The Audit Committee of the Board of Directors is tasked with oversight of cybersecurity risk181182 - For more than five years, the company has identified no material cybersecurity incidents that have materially impacted its business, operations, or financial condition177 Item 2. Properties The company leases its principal executive offices in Santa Clara, California, and maintains additional global office spaces - The principal executive offices are leased in Santa Clara, California, covering approximately 20,800 square feet under a lease agreement that expires in August 2028186 - Additional facilities are leased in various locations including Milpitas, CA; Pittsburgh, PA; Richardson, TX; Salt Lake City, UT; Shanghai, China; Canada; France; Germany; Italy; Japan; South Korea; and Taiwan186 Item 3. Legal Proceedings The company is awaiting a decision in an arbitration proceeding initiated in 2020 against SMIC for unpaid fees - On May 6, 2020, the Company initiated arbitration with the Hong Kong International Arbitration Center against SMIC New Technology Research & Development (Shanghai) Corporation for failure to pay fees191 - The Company seeks to recover unpaid fees and costs associated with the proceeding and is awaiting a decision from the Tribunal after submitting final arguments in August 2024191 Item 4. Mine Safety Disclosures This item is not applicable to the company's operations - Not applicable192 PART II Item 5. Market For Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on Nasdaq, has not paid dividends, and initiated a new $40.0 million stock repurchase program in April 2024 - The company's common stock trades on the Nasdaq Global Market under the symbol "PDFS"195 - No cash dividends were paid in 2024, 2023, or 2022, and the company does not anticipate paying any in the foreseeable future196 - On April 15, 2024, the Board of Directors adopted a new stock repurchase program authorizing the repurchase of up to $40.0 million of common stock over two years203 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Total revenues increased 8% to $179.5 million in 2024, driven by Analytics growth, with $4.1 million net income and $114.9 million in cash Financial Highlights for Fiscal Year 2024 (in millions) | Metric | 2024 | 2023 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $179.5 | $165.8 | +$13.6 | +8% | | Analytics Revenue | $169.3 | $152.1 | +$17.2 | +11% | | Integrated Yield Ramp Revenue | $10.2 | $13.8 | -$3.5 | -26% | | Net Income | $4.1 | $3.1 | +$1.0 | +32% | - The company identifies significant judgments in its revenue recognition process, including determining standalone selling prices (SSP), estimating progress for percentage-of-completion contracts, and estimating variable Gainshare royalties228229231232 - A full valuation allowance of $67.9 million was maintained against U.S. federal and state net deferred tax assets as of December 31, 2024233 Cash Flow Summary (Year Ended Dec 31, in thousands) | | 2024 | 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $9,703 | $14,600 | | Net cash used in investing activities | ($5,936) | ($28,991) | | Net cash used in financing activities | ($11,233) | ($5,890) | - As of December 31, 2024, the company had contractual purchase obligations of $30.8 million, majority due within the next 12 months291419 Item 7A. Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from interest rate fluctuations on its $114.9 million cash portfolio and foreign currency exposure, without using derivatives - The company has interest rate risk related to its cash, cash equivalents, and short-term investments portfolio, which totaled $114.9 million as of December 31, 2024293 - Foreign currency exchange risk exists as certain balances are denominated in local currencies, but the company did not use any foreign currency derivative instruments in 2022, 2023, or 2024297 Item 8. Financial Statements and Supplementary Data The audited financial statements show $315.3 million in total assets for 2024, with Revenue Recognition noted as a Critical Audit Matter, and a $130 million acquisition announced post-year-end - The independent auditor, BPM LLP, identified Revenue Recognition as a Critical Audit Matter due to significant management judgments303308 Consolidated Balance Sheet Data (in thousands) | | Dec 31, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Total current assets | $205,979 | $197,848 | | Total assets | $315,289 | $290,136 | | Total current liabilities | $60,542 | $50,843 | | Total liabilities | $69,252 | $61,190 | | Total stockholders' equity | $246,037 | $228,946 | Consolidated Income Statement Data (in thousands, except per share) | | Year Ended Dec 31, 2024 | Year Ended Dec 31, 2023 | | :--- | :--- | :--- | | Total revenues | $179,465 | $165,835 | | Gross profit | $125,321 | $114,086 | | Income before income tax | $6,579 | $4,869 | | Net income | $4,057 | $3,105 | | Diluted EPS | $0.10 | $0.08 | - As of December 31, 2024, the company had $221.4 million in remaining performance obligations from customer contracts, mostly expected to be recognized over the next two years397 - On February 19, 2025, the company agreed to acquire SecureWise LLC for a cash purchase price of $130 million, expected to close in Q1 2025472475476 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes or disagreements with its accountants regarding financial disclosure - None478 Item 9A. Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2024 - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2024479 - Management's assessment concluded that internal control over financial reporting was effective as of December 31, 2024, based on the COSO framework, and was affirmed by BPM LLP480481 Item 9B. Other Information No directors or officers adopted or terminated Rule 10b5-1 trading arrangements during Q4 2024 - No directors or officers adopted or terminated a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement during the quarter ended December 31, 2024483 Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company - None484 PART III Item 10. Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the definitive Proxy Statement Item 11. Executive Compensation Executive compensation details are incorporated by reference from the definitive Proxy Statement Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Security ownership and equity compensation plan information is incorporated by reference from the definitive Proxy Statement Item 13. Certain Relationships and Related Transactions, and Director Independence Related party transactions and director independence information is incorporated by reference from the definitive Proxy Statement Item 14. Principal Accountant Fees and Services Principal accountant fees and services information is incorporated by reference from the definitive Proxy Statement PART IV Item 15. Exhibits and Financial Statement Schedules This section lists financial statements, schedules, and exhibits, including key agreements like the SecureWise acquisition Item 16. Form 10-K Summary This item is not applicable - Not applicable512